China Clean-Air Bid Faces Resistance

The heavy smog that often shrouds Beijing is a reminder to China's new leadership that it must address the pollution that affects its citizens. The WSJ's Brian Spegele talks about how the government might tackle the problem.

By

Brian Spegele And

Wayne Ma

Updated Jan. 22, 2013 10:42 p.m. ET

BEIJING—China's government is facing stiff resistance from sprawling state-owned corporations and local interests in its bid to combat air pollution, in an early test for the nation's new leaders following some of the worst air-quality days in recent memory.

A consequence of decades of breakneck growth, China's deep environmental problems are now seen as a potential obstacle to strong economic development, with concerns ranging from air pollution and water use to increasing consumption of fossil fuels. China's environmental degradation will be one of the topics at the World Economic Forum in Davos, Switzerland, this week, as part of a broader conversation on reform needed to keep the world's No. 2 economy humming.

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Growing evidence suggests China's programs to cut emissions from coal-fired power plants—traditionally a major source of its massive pollution problems—have had some success. But that is being partly undermined by rapidly rising industrial output, such as coal-fueled steel production, and lagging fuel standards for China's ballooning numbers of cars and trucks. In addition, analysts say emission goals that target specific pollutants aren't enough to stem wider air-quality problems.

"The potential of reduction for power plants is small," said Zhao Yu, who researches atmospheric pollutants at Nanjing University. If the government doesn't now pay attention to industrial and other sources of pollution, "overall emissions will continue to grow."

Finding and tamping down pollution sources has become an imperative for China's new leaders, who have acknowledged they must appease an increasingly pollution-conscious public without undermining economic growth. The problem drew national headlines earlier this month when Beijing's levels of PM 2.5—tiny particulate matter harmful to human health—exceeded by more than 70 times what the U.S. considers a standard for health.

On Tuesday, Beijing's acting mayor, Wang Anshun, pledged to remove 180,000 old vehicles from the roads and replace dirty coal-burning boilers in some Beijing homes, among efforts aimed at drawing down major air pollutants by 2% this year, according to the state-run Xinhua news agency.

Over the long term, drawing down emissions will require costly upgrades to industrial facilities and oil refineries, measures resisted by state-owned companies unable to pass costs on to consumers and local governments that depend on industrial output for revenue.

China's two largest refiners—China Petrochemical Corp., known as Sinopec Group, and PetroChina Co.—both defend their environmental records, with Sinopec saying it has spent billions of dollars upgrading refineries. PetroChina said it complies with national quality requirements. A number of steelmakers didn't respond to requests for comment.

Handling China's state-owned companies big and small will be a challenge to any effort by the new Chinese leadership under Xi Jinping to reform the economy. While they compete for capital and resources with the private sector, they are also major employers with politically connected leaders and often function as an instrument of Beijing's policy goals, giving them tremendous political sway.

Though attention over the years has focused on power plants and passenger-car emissions, China's pollution problems are complex and spread broadly across the economy. Mr. Zhao, of Nanjing University, and a research team studied the effectiveness of Chinese government policies in curbing emissions between 2005 and 2010 and estimated PM2.5 from coal-fired power generation fell roughly 21% as cleaner technologies took hold. Meanwhile, PM2.5 emissions from iron and steel production rose roughly 39% to 2.2 million metric tons, according to the estimates, as output increased.

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An elderly man gets help putting on a mask for protection against polluted air in Shanghai, while foreigners hand out free masks to passersby.
Associated Press

China is particularly struggling to curb what are known as secondary pollutants, formed when primary pollutants—such as emitted sulfur dioxide and nitrogen oxides, from coal burning and other sources—undergo reactions in the atmosphere. The government has had some success targeting primary pollutants, but analysts say it is just beginning to target secondary pollutant problems, including particulate matter that is harmful to human health.

"They're succeeding at some of the big but simpler problems and really just getting started on more complicated secondary pollutant problems," said Chris Nielsen, another researcher on the project and executive director of Harvard's China Project, which focuses on the atmospheric environment.

Steel production has grown steadily in recent years in China, and rose 3.1% in 2012, as the Chinese government invested heavily in roads, railways and other infrastructure to support economic growth.

Unlike the power sector, the steel industry is fragmented and tougher to control, particularly with local governments relying on smaller, and often dirtier, mills. Smaller mills raised their output by nearly 20% in the first nine months of 2012 even as larger mills cut theirs by 2% amid a price drop.

The government appears to be taking some steps to curb steel emissions. The latest industry blueprint from the Ministry of Industry and Information Technology, which took effect in October, cut maximum thresholds for sulfur dioxide emissions.

The government's struggle to curb industrial emissions comes as China has emerged as the largest auto market for new vehicles. Winning concessions from China's politically powerful oil refiners are among the challenges environmental regulators face.

Heavily regulated fuel prices have discouraged Chinese refiners from producing cleaner diesel, as the higher costs can't be passed on to consumers. Meanwhile, trucks account for almost one quarter of China's vehicles but contribute a disproportionate share, almost 80%, of vehicle particulate matter.

In one example, the Finance Ministry and Chinese refiners are deadlocked in negotiations over subsidies to help offset the higher costs of upgrading and operating refineries that produce cleaner diesel fuel, according to Gong Huiming, transportation director at the Energy Foundation, a nonprofit that focuses on U.S.-China energy issues.

While particulate matter emitted by vehicles make up a small part of overall particulate matter in China, in dense urban areas, it is almost certainly the highest contributor to human exposure of PM2.5, according to Vance Wagner, a senior researcher at the International Council on Clean Transportation.

Tighter diesel fuel standards could help reduce vehicle emissions by as much as 15%, according to Yue Xin, head of the vehicle fuels and emissions lab at the Chinese Research Academy of Environmental Sciences, which is affiliated with the Environmental Protection Ministry.

Tang Dagang, director of the Vehicle Emission Control Center, a policy research group also affiliated with the ministry, said pressure increased last year to tighten diesel fuel standards after the State Council, or cabinet, announced stricter air-quality rules.

A technical committee plans to release tighter diesel standards soon, said Mr. Tang, who is a member of the 44-person committee, which is overwhelmingly dominated by refining-industry representatives. However, Chinese refineries won't produce cleaner fuel until the higher production costs are addressed by the Finance Ministry, he said, adding that enforcement of existing standards is already poor.

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